Grants

The University of Chicago

To pilot an international survey of expectations about inflation

  • Amount $581,194
  • City Chicago, United States
  • Investigator Michael Weber
  • Initiative Behavioral and Regulatory Effects on Decision-making (BRED)
  • Year 2022
  • Program Research
  • Sub-program Economics

Most economists also agree that high or accelerating inflation is dangerous. Feedback loops can lead to hyperinflation and societal instability associated with hoarding, wage spirals, lending reluctance, extreme uncertainty, as well as other mechanisms.There are three main ways that runaway inflation can start. The first two, sudden supply decreases and sudden demand increases, have both occurred as the COVID pandemic has run its course. These shocks have widely been viewed as transitory, however. The third factor, self-fulfilling inflationary expectations, are more worrisome and less well understood. Central bankers therefore fight such expectations aggressively by, for example, imposing dramatic interest rate hikes and promising to "do whatever it takes" even if that means bringing on a recession to dampen demand.So, given the powerful role of inflationary expectations, what do we know about their formation, propagation, distribution, and effects? Most macroeconomic models, to the extent they incorporate expectations at all, oversimplify everything by positing a "representative agent." This helps with solving the equations but leaves out all the details about how different people feel and act under different circumstances. Behavioral Macro, a field Sloan helped launch, is gradually unpacking such "heterogeneity." One major goal is to figure out how expectations management could be better tailored to particular audiences rather than just trying to scare everyone. The necessary data are shockingly spotty, however. Along with their inflation rates, very few countries release population-wide averages of inflation expectations. Critically missing is comprehensive and compatible "microdata," i.e., information about individuals, their situations, and their beliefs concerning inflation. This grant seeks to fill this important gap.University of Chicago economists Michael Weber and Francesco D’Acunto will field an international survey to ask a representative sample of people from around the world about what they understand and expect concerning inflation. Experts ranging from researchers to policymakers have already shown great interest in this expensive and complicated undertaking. The data will be made available to the public with the hope that the success of such a pilot will lead to the running of global surveys like this on an ongoing basis.

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